08ASTANA65, KAZAKHSTAN: CHEVRON FACES THE SQUEEZE AT TENGHIZ

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C O N F I D E N T I A L ASTANA 000065
SIPDIS
SIPDIS
ENERGY FOR EKIMOFF
COMMERCE FOR HUEPER
STATE FOR SCA/CEN (M. O'MARA) AND EEB
E.O. 12958: DECL: 01/14/2018
TAGS: EPETENRGECONPRELKZ
SUBJECT: KAZAKHSTAN: CHEVRON FACES THE SQUEEZE AT TENGHIZ
AND KARACHAGANAK
Classified By: AMBASSADOR JOHN ORDWAY FOR REASONS 1.4(B) and (D)
¶1. (C) Summary: Chevron executives Guy Hollingsworth and
James Johnson told the Ambassador on January 11 that
Chevron is facing "sanctity of contract" issues at its two
most significant fields in Kazakhstan, Tenghiz and
Karachaganak. Earlier in the day, the two had warned Prime
Minister Masimov that Chevron views as unacceptable new
fees levied at Karachaganak for permitted (rather than
actual) emissions and at Tenghiz for sulphur storage.
Nevertheless, they affirmed that Tenghiz continues to be
extremely productive (and profitable), and informed the
Ambassador of plans to build a joint Kazakhstan-Chevron
pipeline. End Summary.
¶2. (C) Guy Hollingsworth, President for Chevron Eurasia,
Europe and Middle East Exploration and Production, and
James Johnson, Chevron Eurasia Strategic Business Unit
Managing Director, told the Ambassador on January 11 that
Chevron is experiencing "sanctity of contract" problems at
Tenghiz and Karachaganak. At Tenghiz, Tenghizchevroil has
been charged $309 million dollars to store sulfur.
Tenghizchevroil, they said, has a contractual right to
store sulfur without cost.
¶3. (C) The Karachaganak consortium, where Chevron is a non-
operating partner, is also facing unjustifiable fees, they
said. Hollingsworth reported that the consortium developing
the field has reduced emissions under the operatorship of
British Gas. Now, he said, the Kazakhstanis are trying to
charge the consortium for permitted emissions, rather than
actual. The consortium has refused to pay the extra costs.
The Kazakhstanis have in turn frozen the consortium's bank
accounts.
¶4. (C) Prior to speaking with the Ambassador, Johnson and
Hollingsworth had met with Prime Minister Masimov and told
him that Chevron is extremely concerned with the situations
at Karachaganak and Tenghiz. Chevron can't do business in
such an enviroment, they warned. They also told Masimov
that it is in no one's interest, least of all Kazakhstan's,
to go to the courts.
¶5. (C) The $300 million sulfur storage fee, noted
Hollingsworth, is small pittance for Kazakhstan when
compared to the country's overall earnings from Tenghiz.
Hollingsworth estimated that Tenghiz generated $3 billion
in revenue for Kazakhstan in 2007, to jump to $8 billion by
the time of first expansion later this year and to $16
billion
by final expansion. Hollingsworth and the ambassador agreed
that most often the extra fees levied on foreign companies at
places like Tenghiz and Karachaganak are generated by
regional
officials, because the money goes to local budgets. Johnson
said that actions at Tenghiz indicate that Kazakhstan is
trying to change the contract for Tenghiz.
¶6. (C) Hollingsworth informed the Ambassador of plans to
build a pipeline to deliver Tenghiz crude to the Caspian.
According to Hollingsworth, Chevron approached Timur
Kulibayev one year ago with the pipeline idea, motivated by
increased production at Tenghiz and near-maximized rail
capacity. Kulibayev said no on a pipeline, but promised
to bring Chevron in to the Kazakhstani Caspian Transportation
System (KCTS). Chevron, however, has been unable to join
KCTS. In December, Chevron again raised the pipeline with
Kulibayev, with Kulibayev this time agreeing. The pipeline
will be a joint Chevron-Kazakhstan project, with no other
partners and Kazakhstan as the builder and operator. Chevron
will hold 25% and provide some technical assistance during
the construction phase. (Comment: In a January 11 meeting
with Senator Lugar, Prime Minister Masimov confirmed that
Kazakhstan is in talks with Chevron with about building a
pipeline. Masimov and the Chevron representatives also
offered
a similar message on reports of CPC expansion - both said
that
problems still remain. End comment.)
7 (C) Comment: Chevron maintains a very healthy relationship
with the Government of Kazakhstan. Nevertheless, its problems
at Karachaganak and Tenghiz demonstrate that even the
strongest
ties to Astana do not currently guarantee absolute protection
from arbitrary actions by regional authorities, or by less
progressive members of the GOK. Chevron has an enviable
track
record of using its long-standing positive relationships,
coupled by very judicious use of threats to shut down
production, to resolve its problems. With the Tenghiz
revenue
stream about to explode and the GOK getting 70% of each
additional dollar in the rise of the price per barrel, there
should be little stomach in Astana to kill the California
goose that is laying ever bigger golden eggs for the GOK.
End Comment.
ORDWAY

The information recorded on this site has been extracted from http://Wikileaks.org (Kazakhstan) database..

We wish to express our gratitude to Julian Assange and his team for making this data available as it is an important public record.

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